WASHINGTON (MNI) – The following is the text of the latest
Beige Book survey of economic conditions in the Federal Reserve’s
Sixth District, published Wednesday:

SIXTH DISTRICT – ATLANTA

Summary. Sixth District business contacts described economic activity as
expanding slowly in September, and most expect little change in the near term.

Most retailers cited slow sales growth while auto dealers continued to
experience strong results. Hospitality reports remained largely positive, with
the exception of cruise-lines. Residential brokers and builders signaled that
housing conditions continued to improve in many parts of the District as sales
and prices of new and existing homes slightly increased compared with a year
ago. Commercial development continued to improve, led by multifamily
construction. Manufacturers indicated that new orders had softened while
production levels only mildly increased. Bankers saw improvements in demand for
overall loans, particularly those for housing purchases and refinances. Payrolls
expanded modestly on net, and firms noted some deceleration in input prices,
while wages remained relatively unchanged.

Consumer Spending and Tourism. Most District merchants reported that sales
growth remained slow in September. Discount retail operations outperformed
traditional department stores. Most retailers projected continued soft growth in
sales through the end of 2012. Contacts in the auto industry reported that
strong sales levels were maintained in September.

Leisure and business travel contacts continued to report strong activity
and an optimistic outlook for the remainder of the year. Occupancy and room
rates as well as convention bookings were solid. While there has been some drop
in traffic from Europe, this was largely offset by strong visitor numbers from
Canada and Latin America. Cruise-line bookings and onboard spending remained
below expectations, but the industry anticipates some improvement next year.

Real Estate and Construction. District residential brokers indicated that
recent existing home sales were up slightly compared with year-earlier levels.
Buyer traffic also remained ahead of year-ago levels. Brokers again noted
declining inventories, which continued to put upward pressure on home prices in
many markets. Contacts anticipate modest home price gains over the next year;
however, it is expected that neighborhoods hard hit by foreclosures will
continue to experience home price weakness for some time. The short-term outlook
for home sales remained positive overall, with the majority of contacts
anticipating modest gains.

Reports from District homebuilders remained positive, as well. Builders
indicated that recent new home sales and construction activity were up slightly
from year-earlier levels and new home inventories remained below year-earlier
levels. Construction remained mostly limited to more desirable locations, such
as those in highly regarded school districts. Southeastern builders also
reported that finished lot inventories varied across the region, but most
anticipate a decline in those inventories over the next six months. Many
indicated that financing terms remain prohibitive for acquisition and
development. New home prices were slightly up compared with a year earlier.
Homebuilders also witnessed stronger buyer traffic. The outlook for construction
activity and new home sales remained positive.

Commercial contractors indicated that the pace of construction continued to
expand and backlogs were slightly up from earlier in the year. Apartment
development continued to dominate the District’s commercial real estate market.
Multifamily rent growth remained positive but has slowed somewhat in recent
months. Contacts indicated that the District’s office and industrial markets
continued to make small improvements, while the retail sector was described as
sluggish. Many contractors reported that clients remain hesitant to move ahead
on new projects. However, most anticipate that construction activity will be
flat to slightly up in 2013 compared with 2012.

Manufacturing and Transportation. While noting that new orders continued to
slow, manufacturing contacts reported mild increases in production, employment,
and finished inventory levels in September. Regional auto and auto parts
producers, as well as firms that supply materials to the energy exploration and
extraction sector, continued to report strong levels of production, but most
other durables manufacturers noted a slight deceleration in output. Nondurables
output, with the exception of food and chemicals, remained soft.

A Southeast port contact reported record-setting cargo volumes in fiscal
year 2012, with increases across all categories. Despite the underlying increase
in demand tied to replacement of aging truck fleets and the benefits of
increased fuel-efficiency, new orders for heavy-duty trucks have stalled
recently. Rail contacts reported that lumber shipments have increased. Air cargo
companies saw an increase in cargo volume tied to the launch of various
smartphones and computer tablets, which favor shipment by air over other
modalities.

Banking and Finance. Banking contacts reported an increase in demand for
mortgage loans for both purchases and refinances, although some contacts noted
fewer than half of the applications actually were approved. The improvement in
demand for purchase loans was driven by activity in entry-level homes. Demand
for auto loans remained strong. Business lending had increased slightly;
however, contacts noted most of the increase was not organic loan growth but was
primarily from customers switching from other lenders or credit cards.

Employment and Prices. Regional employment growth picked up slightly in
September, but remained muted. Reports indicated that sectors related to energy,
autos, and housing were experiencing most of the hiring activity. Reports also
cited deepening ties between private employers, education representatives, and
government officials in an effort to address training deficiencies for in-demand
positions. The majority of contacts reported that stagnant demand is the major
reason behind sluggish employment trends, although uncertainty related to fiscal
policy continued to weigh on some firms’ hiring plans.

The majority of businesses contacted reported relief for some input prices
and little change in wage plans. Firms responding to our Business Inflation
Expectations survey reported that unit costs were up 1.3 percent in September
over the past year, which is 0.3 percentage points lower than the August
reading. Looking forward, businesses’ expectations for inflation also moderated
somewhat. On average, firms expected unit costs to rise 1.7 percent over the
next 12 months. Though that number was down from August, survey contacts noted
that rising materials costs could be a source of moderate upward price pressure
going forward. Along those lines, several manufacturing contacts indicated that
some input prices have increased recently, causing concern of additional margin
pressure.

Surveyed firms reported that sales levels were 7.6 percent below “normal”
times, though assessments varied widely by the size of the firm. In particular,
small and medium-sized businesses reported experiencing about twice as much
slack as their larger counterparts, a finding that is consistent with anecdotal
insights gathered from our business contacts.

Natural Resources and Agriculture. After brief, precautionary shut downs
related to Hurricane Isaac, regional refiners fully restored operations with
very little damage from the storm. Energy industry contacts continued to report
that Gulf Coast refineries were undertaking investments to increase production
capacity following refinery closures elsewhere in the country. Natural gas
prices continued to experience downward price pressures. Contacts continued to
note that inexpensive natural gas had prompted downstream manufacturers to
relocate overseas operations to the U.S., prioritizing locations near refining
operations.

Agriculture contacts said that the rise in some crop prices, resulting from
the drought in the Midwest, had led to increased crop production in the
Southeast where soil conditions were more favorable, but the overall rise in
feed prices was putting pressure on livestock producers. Compared with the same
time last year, prices paid to farmers for corn, rice, soybeans, beef, and
broilers were up while cotton prices were down.

** MNI Washington Bureau: 202-371-2121 **

[TOPICS: MMUFE$,M$U$$$,MGU$$$]